Kristian Ruby, Chief Policy Officer at EWEA, said: "The ETS needs root and branch reform. The instrument must be realigned with Europe’s political ambition on climate change. The removal of surplus permits and the elimination of free allocation would be the first steps to achieving this."

In addition to stimulating a higher price on carbon, ETS reforms post-2020 must include tools that will drive fossil fuel-dependent Member States toward decarbonised and renewable energy portfolios.  

For example, the modernisation fund, which will set aside a share of ETS allowances for investment projects between 2021 and 2030, must be key to addressing renewable energy integration in lower income Member States.

Ruby said: "Putting measures in place to phase out the most polluting assets in Europe should be a top priority in this reform, particularly for those Member States in Central and Eastern Europe that rely heavily on coal-fired generation."

Ruby added: "Already we see that wind energy, particularly onshore, represents the strongest business case for European countries trying to balance decarbonisation pledges with economic competitiveness and growth. With a functioning ETS and a robust carbon price, we can speed up Europe's energy transition and reach our goals in a more cost-effective manner."

Strong role for EIB

Investments through the solidarity mechanisms such as the modernisation fund and free allocation for utilities must also include a role for the European Investment Bank.

This would ensure that the EIB has oversight on project selection while also applying the bank's lending criteria, including its emissions performance standard, in the process.

Ruby said: "It is important that the EIB is involved in the investment strategy to provide an independent voice on which projects should receive financing. With the participation of the European Commission and the EIB, we can guarantee that projects have an economic justification and are in line with the EU-wide decarbonisation objectives."